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Expect real GDP to grow 3.5% YoY in 4QFY21

* Real GDP/GVA grew 0.4%/1% YoY in 3QFY21 (v/s our forecast of -0.7%/-0.5% and market consensus of +0.5%/+0.7%).

* Notably, real GDP growth in 3QFY20 was revised downward to 3.3% YoY from 4.1%. Without this revision, real GDP growth would have come in at -0.6% YoY in 3QFY21, similar to our forecast. With this, India has officially emerged from a technical recession in 3QFY21.

* Growth in real GDP was largely attributable to a 2.1% YoY growth in Gross Fixed Capital (GCF). The latter contributed 0.7pp to overall GDP. Within GCF, real investment – Gross Fixed Capital Formation (GFCF) and change in inventories – showed an improvement in 3QFY21. Consumption expenditure, however, was a laggard (down 2.2% YoY) in 3QFY21, led by contraction in both personal and government consumption. The 1.1pp contribution by discrepancies to GDP in 3QFY21 is the highest in FY21 so far.

* The farm sector has been the biggest positive for India’s economic growth in FY21. It grew 3.9% YoY in 3QFY21, contributing 0.7pp to overall GVA growth. Industrial activity grew 2.7% YoY in 3QFY21 as against a 3% contraction in 2QFY21. Within industry, while manufacturing, electricity, and construction contributed positively, mining and quarrying continued to disappoint. The services sector contracted 1% YoY, with only financial, real estate and professional services performing better in 3QFY21 compared to preceding quarters.

* Nominal GDP grew 5.3% YoY in 3QFY21 as against a contraction of 4.2% YoY in 2Q. This implies that GDP deflator has increased to 4.8% YoY in 3QFY21 from 3.4% YoY in 2QFY21 and 3.1% YoY in 3QFY20.

* Using quarterly data on net exports of goods and services and total investments, our estimates suggest that while implied gross domestic savings (GDS) increased marginally to 27.8% of GDP in 3QFY21 (the highest in any third quarter in the past five years), it was still weak at only 27.4% of GDP in 9MFY21 – the lowest in any nine months in the past three years.

* Besides providing quarterly GDP estimates, the CSO also published its second advance estimates for real GDP growth. It is surprising that CSO expects real GDP to contract 1.1% YoY, implying an 8% YoY contraction in FY21. We, however, continue to believe that real GDP may grow at 3.5% YoY in 3QFY21, leading to a 6.7% YoY contraction in FY21.

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